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The SEC Cracks Down on Illegal Activity: Fighting Fraud by Demanding Disclosure

In fiscal year 2016, the Securities and Exchange Commission focused on uncovering and fighting fraud, and demanding truth – or the full disclosure of information. The agency initiated several financial fraud actions against both companies and executives focusing primarily on financial misstatements that mislead investors, often in form of inaccurate and unreliable financial reporting.

The actions included accounting fraud charges against the oil services company Weatherford International and several of its top executives, which used deceptive income tax accounting to inflate its own earnings by $100 million. Weatherford agreed to pay a $140 million penalty, while the SEC investigation continues. Technology manufacturer Logitech International was similarly charged with inflating its 2011 financial results. The company agreed to pay $7.5 million to settle the charges. Former executives of battery manufacturer Ener1 were charged with overstating the company’s revenues and assets, and agreed to pay penalties totaling $180,000. The auditors in this case were also held accountable.

The effects of financial fraud – and the need to protect investors and market participants from it – are particularly felt during times of severe financial crisis. The SEC thus charged eleven former executives and board members of Superior Bank with fraud for concealing the financial losses the company faced during the recent recession, and overstating the Bank’s net income by as high as 99 percent for 2009 and 50 percent for 2010. The Bank mislead both investors and bank regulators before it failed in 2011. The SEC is committed to uncovering and preventing such misconduct that carries with it potentially catastrophic consequences.

While the majority of SEC’s antifraud actions focus on financial reporting and misstatements, other forms of disclosure fraud have been pursued by the agency as well. An SEC investigation recently found that Navistar International Corp. withheld from the public the difficulties the company had with developing an advanced technology truck engine that complied with U.S. emission standards. Navistar’s repeated mischaracterization of the truth in press releases, public conference calls, and in its SEC filings cost the company $7.5 million.